You need to configure your directory as an application under IIS.
goto start --> run --> Inetmgr
Expand the local computer node, then the Web Sites folder, finally expand the Default Web Site node. Locate the folder that your application resides in, right click on it, select properties from the context menu that appears. This will open a new window. Right close to the middle portion of this window will be a button labeld 'Create', press this button, then press Apply then OK.
This should resolve your problem.
-Doug
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